ArmInfo. In 2019, the NPL level in the total loan portfolio of Armenian banks decreased from 9.5% to 8%, and in assets from 6.2% to 5.1%. At the same time, the volume of overdue loans for the reporting year remained almost unchanged, while the amount of healthy (standard) loans began to grow more slowly. In their structure, over 62% are non-performing and doubtful loans groups, and the dominant of the latter does not decrease.
These indicators are given from the Financial Rating of the Banks of Armenia as of December 31, 2019, prepared by ArmInfo IC on the basis of financial reports, which include a new format for presenting credit risk (according to IFRS9), which does not fully reflect the real situation of the quality of the loan portfolio and the presence of toxic loans (NPL). Nevertheless, ArmInfo IC asks the banks for the necessary data, which allows to calculate the total amount of non-performing loans and therefore their share in the loan portfolio of banks.
According to the analysts of the "AM RATING" NATIONAL RATING AGENCY: "Nevertheless, the abovementioned 62% do not reveal the full picture of the toxicity of the portfolio, because with the transition to a new reporting format for credit risk, many banks simply stopped providing data on the most formidable item, which are bad loans. However despite this, their "massive" presence is indicated by a strong slowdown in profit growth for 2019 to 38.4% from 62% for 2018, and its quarterly decline by 16.1%, which is the result of ongoing write-offs from the balances of non-performing loans ".
According to the forecasts of "AM RATING" analysts, this process will continue to negatively affect the level of profitability of the banking sector, at least until the maximum debt burden ratio is applied, which is designed to exclude over-lending to borrowers, with an accompanying real improvement in the loan portfolio. In the meantime, low interest rates, a significant decrease in margins and a weak growth in interest income, hold back expectations for ROA and ROE to reach a high level: by the end of 2019, the return on assets (ROA) of the banking system hardly reached 1.44%, and the return on equity (ROE) was 9.73%, against the forecasted by ArmInfo 1.5% and 9.5%, respectively.
- Over 40% of overdue loans are consumer loans (including mortgages), increasing by 14% per annum. Then, by the mass of bad loans, the trade sector follows - about 25% (with an increase of 32% y-o-y), and a little less is concentrated in the agricultural sector (over 15%, with a slight increase in volume) and catering and services (about 10%, with almost 3-fold y-o-y growth). The dominant part of non-performing loans is concentrated in the following areas: consumer loans (including mortgages) - over 34%, trade - more than 15%, the agricultural sector - about 12%, and about 10% accumulated in the catering / services sector and a little less in the industrial sector.
It is noteworthy that these same sectors dominate in the volume of credit investments: consumer loans - 27.6%, trade - 17.4%, industrial sector - 13.8%, mortgage - 9.8%, catering / services - 7.6%. And the agricultural and construction sectors account for 5-5.6% of credit investments. The volume of consumer loans decreased in 2019 by 36.2%, with the growth of mortgages by 39.4%. Crediting of the catering / services sector increased in 2019 by 23.6%, the trading sector - by 16.1%, and the industrial sector dipped by 5%. Investments in the construction sector - 26.4% and in the agricultural sector - 10.9% also increased.
The total loan portfolio of Armenian banks exceeded 3.7 trillion drams ($ 7.8 million) by January 1, 2020. In the structure of assets that amounted to 5.8 trillion drams ($ 12.1 million) at this date, the share of credit investments decreased in 2019 from 65.4% to 64.5%, which is due to a higher y-o-y growth of assets (by 17.5%) than loans (15.4%), while a year earlier both indicators showed the same growth by 14%.
Analysts note with regret that the transparency of the banking system, with the transition to new reporting under IFRS9, has decreased due to the "concealment" of the quality structure of loans, namely, the classification of the portfolio by risk group. Independent analysts are most worried about the absence in the new format of the most formidable and dangerous article for assessing the reliability of banks - bad loans. Unfortunately, the regulator has taken a neutral, indifferent position on the issue of disclosing credit risks for the expert and investment community.
.
